director’s pension planning · director’s pension planning this presentation is for information...

Director’s Pension Planning

This presentation is for information only and does not constitute an offer or recommendation and has not been prepared on the financial needs or objectives of any particular person. It is intended for the use with Financial Brokers and Advisers only and is not intended for use with any customers.

Turning Company Profits into Personal Wealth?

Salary : Income Tax up to 40%

: Pay Related Social Insurance Up to 4%

: Universal Social Charge up to 8%

Car : Benefit in Kind up to 30% (plus Pay

Related Social Insurance & Universal

Social Charge)

Dividends : Tax up to 40%

Sell Shares: Capital Gains Tax up to 33%

Death : Capital Acquisitions Tax up to 33%

€ Profits

Subject to

Corporation Tax

Transfer Profits

Before Tax

Income & Capital

Growth

- Tax Free

- Creditor Free

Retirement Lump

Sum

Income for Life

Approved

Retirement Fund

Taxed Cash

Drawing a Salary -v- Pension Contribution

• Director Aged next birthday of 45 retiring at age 60

• Take an additional €60K per annum (p.a.) over a 15 year timeframe

• If the €60,000 is taken as income, Income tax at 40% will be

• paid on it, plus • Class S Pay related Social Insurance at 4%

• Universal Social Charge at 8%

Drawing a Salary -v- Pension Plan

This €60K can be taken out of the company tax free! (not guaranteed)

The company can get tax relief at 12.5% (not guaranteed)

Tax free growth within the fund

No Benefit in kind is payable

Pension income in retirement is subject to income tax, the universal social charge, Pay Related Social Insurance (if

applicable) and any other taxes or Government levies on any withdrawals you make.

Advantage:

Tax Example – with no growth / charges

Company

Over 15 years

SALARY PENSION

A gain of €97,500

Company pays

Total

Payment

Tax paid

Final

Benefit

€50,000 p.a. €50,000 p.a.

€750,000 €750,000

€292,500 €390,000

€457,500 €360,000

Warning: These figures are estimates only. They are not a reliable guide to the future performance of the investment.

Warning: If you invest in this product you will not have access to your money until age 60 and / or you retire.

Warning: The value of your investment may go down as well as up.

Warning: If you invest in this product you may lose some of all of your money you invest.

Example with growth

Assumptions: • Complete Solutions 1 • 100% Net Investment • MAPS 3 (0.9% Fund

Management Charge) • Growth Rate 4.3% • 0.25% Trail

AMRF?

Leave in ARF

€719,694

in ARF

€345,453 cash

Withdraw

less tax

€231,918

Lump Sum

€577,371

€959,593





Pension without growth Pension with growth As Salary

Total Fund €750,000 €959,593 €750,000

Gross Lump Sum €187,500 €239,898.25 —

Tax due lump sum €0 €7,979.65 —

Net Lump Sum €187,500 €231,918.60 —

Balance subject to tax €562,500 €719,694 €750,000

Income tax @ 40% €225,000 €287,877.60 €300,000

Pay Related Social Insurance @ 4% €22,500 €28,787.76 €30,000

Universal Social Charge @ 8% €45,000 €57,575.52 €60,000

Total tax paid €292,500 €374,240.88 €390,000

Total received after tax (includes net lump sum)

€457,500 €577,371 €360,000

Summary: Tax effective wealth extraction (Growth & charges based on previous two slides)





Taxation of Non Pension Investments

• Deposit Interest Retention Tax: 41%

• Exit Tax: 41%

• Rental/Dividend Income Tax: 40%

• Pay Related Social Insurance (4%) is payable on

– rental income, dividend income and interest on deposits,

– if the total such income exceeds €3,174. (Self employed liable with no threshold)

Key Pension Benefits Employer Benefits

• Corporation tax relief on employer contributions at 12.5% (not guaranteed)

• No employer Pay Related Social Insurance is paid on employer pension contributions

Employee Benefits

• Income tax relief on employee contributions & Additional Voluntary Contributions (not guaranteed)

• No Benefit in kind on employer contributions & Fund grows tax free

• Tax free lump sum of up to €200,000 at retirement

Some or all could be tax free up to a maximum of €200,000.

After your retirement lump sum, pension income in retirement is subject to income tax, the universal social charge, Pay Related Social Insurance (if applicable) and any other taxes of Government levies on any withdrawal you make

• Flexible drawdown options at retirement




Key Pension Benefits cont.

• There is the potential for higher funding in a company pension compared to a Personal Retirement Savings Account

The earnings cap doesn’t apply to employer company pension contributions

• There is the option to fund a company pension for a spouse working in the company

• The ability to access benefits in full health from the age of 50 on retirement and disposal of shareholding




Considerations

• Maximum funding rules - always salary and service related

10 years service at Normal Retirement Age for maximum pension 2/3rds final salary

20 years service at Normal Retirement Age for maximum lump sum 150% final salary

• Current Standard Fund Threshold of €2 million.

• Tax Free Retirement Lump Sum: €200,000

Next €300,000 taxed at 20%

Excludes Lump Sums received before 7 December 2005

Some or all could be tax free up to a maximum of €200,000.

After your retirement lump sum, pension income in retirement is subject to income tax, the universal social charge, Pay Related Social Insurance (if applicable) and any other taxes of Government levies on any withdrawal you make

• Death in service lump sum up to 4 x salary

Subject to inheritance tax

includes death benefits from previous employments

Considerations

• No access to fund until normal retirement age

• The pension cannot be used to fund the business

• Borrowing from the pension is not allowed

• All transactions must be at arms length

• Pension income in payment subject to income tax, Pay related Social Insurance &

Universal Social Charge

Information needed to run funding calculations

• Age

• Normal Retirement Age

• Gender

• Salary

• Number of years service in the company to date

• Value of pension benefits with this current employment

• Value of pension benefits in respect of previous employments

Once you have this information you can use our Revenue Maximum calculator to

determine the maximum contribution that can be paid

Getting the numbers…

Pension Calculators available on www.bline.ie

Your Pension Team

The information and tax rates contained in this presentation are based on Irish Life’s understanding of legislation and Revenue practice as at August 2015 and may change in the future. While great care has been taken to ensure the accuracy of the information contained in these slides, Irish Life cannot accept responsibility for its interpretation nor does it provide legal or tax advice.

Irish Life Assurance plc is regulated by the Central Bank of Ireland

director’s pension planning · director’s pension planning this presentation is for information...

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